Dragons’ Den: Series 12, episode 6

Children’s tepee entrepreneur Effie Moss left the Den gobsmacked this week after accepting Deborah Meaden’s offer for a quarter of her business, despite experienced duo Kelly Hoppen and Duncan Bannatyne offering her two Dragons and more favourable financial terms.

Elsewhere, an Argyll-based entrepreneurial duo ended up giving away four times the equity they were hoping for after revealing dire financial straits, and an impressive lighted cycle helmet business failed to gain investment due to inadequate intellectual property protection.

Time will tell whether impressive entrepreneur Effie Moss made the right decision in choosing Deborah Meaden as an investor over more favourable alternative offers – but the Den has never been left in such a state of shock following a pitch.

Moss was seeking £50,000 investment to grow her business selling her ‘magical’ tepees and accessories for children, each of which have a strong bespoke element – parents have the ability to select individual fabrics and designs, meaning every tepee is unique in some way. The product itself was excellently designed, with no obvious faults or drawbacks, but the Dragons became truly excited when Moss revealed the nascent company’s financials. Having generated £124,000 in its first year of trading – of which £48,000 was net profit – Moss’ company also had a burgeoning social media following, with a huge 62,500 likes on Facebook and growing.

Indeed, it seemed Just For Tiny People could do no wrong. The female entrepreneur revealed the £50,000 was needed to invest in more efficient production, as the fast-growing business had to turn down thousands of orders during the Christmas period because it hadn’t the capacity to fulfil them.

With such an impressive pitch, offers were inevitable – and the first came from Kelly Hoppen, whose pedigree in interior design surely made her a front-runner as an investor. Her competitive offer of all the money for a fifth of the business saw Peter Jones step aside; he admitted in a rare moment of candour that other Dragons were more suitable investors. IT entrepreneur Piers Linney stepped aside for the same reasons, leaving the three remaining Dragons to fight it out.

After revealing a plan to turn Just For Tiny People into a holistic children’s brand, Deborah Meaden was next with an offer – £50,000 for 25% of the business, more equity than Hoppen was asking for. Duncan Bannatyne then weighed in with the same offer as Kelly Hoppen, but indicated a willingness to split the equity with the other Dragon, meaning Moss would get two for the price of one.

With an offer of two separate Dragons on one side for less equity, versus just one demanding more, you might think the eventual decision would be a no-brainer. However, Moss shocked the Den when she decided to go with Meaden’s proposal, leaving Bannatyne nonplussed and Hoppen visibly furious. Later, Moss explained that Meaden’s vision for the business won her over, but the unprecedented move surely represents a huge gamble and left the Den in a huge state of shock.

Start-up business lesson: When an investor makes you an offer, don’t just look at how much equity they are demanding; think about whether they represent the right fit for your business generally.

Richard McLuckie and Stuart McKenzie-Walker

Company: Pants on Fire GamesProposition: A range of original board games and trivia gamesInvestment sought: £50,000 for 10% equityInvestment received: £50,000 for 40% equity (Duncan Bannatyne and Peter Jones)

The pitch:

With Peter Jones having had his fingers burned before in the board game business, securing investment from him for another company in the sector was no mean feat for this Argyll-based pair of entrepreneurs – but it came at a heavy cost.

The duo were seeking investment for their range of seven original board games and trivia games, which were already stocked in an impressive array of retailers including WHSmith, Hamleys, Amazon and Waterstones. However, they revealed that their most facially lucrative deal – with doomed UK retailer HMV – had backfired spectacularly, with the former high street giant’s insolvency presenting them with a £20,000 hole in their finances and ensuring they made a loss for the year. Combined with £56,000 of existing debt, the pair were doing nothing to allay the Den’s growing suspicion that the £50,000 ‘investment’ would take more of the form of a bailout in practice.

Their focus on the disastrous HMV deal, rather than the strengths of their business, drew heavy fire from the Den’s investors, with Hoppen, Linney and Meaden all ruling themselves out after opining that the business’ focus seemed to be getting itself out of dire financial straits. Inevitably, Peter Jones then revealed his own chastening experience entering the board game market – with ‘Peter Jones’ Big Business’ – which he said sold more than they expected, but nevertheless “didn’t make any money”.

It was to everyone’s surprise, then, that the normally cautious Duncan Bannatyne announced that he wanted to take a punt on the business, offering half the money for a vastly inflated 20% equity, which Peter Jones would have to match. Perhaps even more surprisingly, Jones did so – and after a valiant, but failed, attempt at negotiation, McLuckie and McKenzie-Walker entered the lift having secured the investment they needed but having given away almost half of their business.

Start-up business lesson: If you are seeking investment for a business in financial trouble, focus on the positives and growth potential rather than the desperate situation you are in.

This pitch was perhaps the clearest example yet of one of the fundamental tenets of ideas-based businesses; if you have invented a new product, it is vital you protect every element of your intellectual property.

Willis and his partner Hugh Roper were seeking additional investment for Willis’ Torch invention, which was a cleverly-designed lit-up rechargeable cycle helmet that could be seen from all directions, enabling safer night cycling for users of busy urban roads. After a well thought-out pitch that impressed the Dragons, Peter Jones revealed he knew rather more about one of the entrepreneurs than they had let on; Hugh Roper was in fact a multi-millionaire, having sold his wireless business Hugh Symons Group to US giant Brightpoint in 2008. The question then immediately arose; with such a great product and substantial financial backing (as well as an oversubscribed pitch on Seedrs), what did they need a Dragon’s backing for? Understandably, Roper’s answer focused on the PR element a Dragon could bring to the company, which was looking to crack the £50bn global cycle market with its unique product.

The pair were dealing well with the Dragons’ probing questions, and the promising business looked certain to receive a slew of offers. But it all fell apart when Peter Jones asked to see the supposedly unique product’s ‘patent’ – in fact, this appeared to be no more than a simple design registration, meaning a larger competitor could easily undercut them simply by changing the look of the product.

Despite its numerous other strengths, this was enough to end the pair’s chances of investment altogether. Piers Linney summed up the mood in the room when he called it “annoying” that such a promising business could be let down by such a fundamental weakness, and the duo entered the lift with nothing.

Start-up business lesson: If your business relies on an original or novel invention, it can’t be stressed enough; obtain all the intellectual property protection you can to protect your business’ value.